The Capital Structure of Swedish Subsidiaries Abroad: Including an Empirical Study of Swedish Manufacturing Subsidaries in Malaysia 1996 (English)Independent thesis Advanced level (degree of Master (One Year))Student thesis

Abstract [en]

The emerging markets in South East Asia are attracing world-wide interrest. They have experienced an average growth in GDP of 7.7.% per year since 1986. The four Tigers have been at the centre of attention but also Thailand and Malaysia have endured economic growht. Many multinational companies have set up subsidiaries in this region. These emerging markets share of foreign investment accounted for 60% of all investments last year. When establishing a subsidiary abroad manay considerations need to be taken into consideration, one of which is the capital structure of the company. The issue for this thesis was to summaries the capital structure determinants identified in theories and previous studies and determine their relativ importance for Swedish subsidiaries in Malaysia. First the company-related capital structure determinants were discussed and thereafter the international factors. This made up the frame of reference for the thesis. The study was made from a micro economic perspective with the focus on the company. A quantitative medhodology was chosen since it was thought to be suitable considering the problem statement and the objectives for this thesis. A questionnaire was sent to Swedish multinational companies with a manufacturing subsidiary in Malaysia. However, the sample proved to be small, and only four valid answers were recived, which is the main limitation of this thesis. The first objective was to explain the determinants influencing the capital structure of multinational companies. This was done in the second chapter of the thesis and summarised in an exhibit. The second objective was to describe the capital structure fo Swedish subsidiaries in Malaysia. The companies included in this study were financed by 40% internal sources, 14% of equity and 46% of debt. This diverges from the result of Singh´s study (1995), but he studied domestic Malaysian companies and this study focused on Swedish subsidiaries in Malaysia. However it does correspond rather well with William and Sekely (1988) who claim that developing countries have a lowe debt ratio than industrialised countries. The third objective was to find the determinants relative importance for the Swedish subsidiaries in Malaysia. Since the sample was very small no internal ranking was statedd. However, this study suggests that local borrowing as a hedge against inflation and devaluation could be an important facot. This will however not influence the debt ratio provided that debt is exchanged for debt. Ti will affect the cost of capital since capital markets are segmented and the real rates of interest do differ between Sweden and Malaysia. The parent companies can provide guarantees and provede equity capital in order for the subsidiaries to be able to raise local financing. Another advantage of debt os the reduction in political resk which it induces. For the two wholly owned subsidiaries it is important to keep the control thus not allowing any local equity capital, and the two joint ventures pointed out the liquidity of assets as a capital structure determinant. None of the subsidiaries has a debt ratio goal but take advantage of favourable financing oppurtunities as they occur. Since hedging often is centralised to the parent company, it could be that the subsidiary´s position are left open.

Place, publisher, year, edition, pages

1996.

Keywords [en]

Capital Structure, Subsidiaries, abroad

Identifiers

URN: urn:nbn:se:hh:diva-6935Local ID: U0759OAI: oai:DiVA.org:hh-6935DiVA, id: diva2:361974

Uppsok

Social and Behavioural Science, Law

Note

Denna uppsats kan beställas från arkivet / This paper can be ordered from the archive. Kontakta / Contact: arkivet@hh.seAvailable from: 2010-11-09 Created: 2010-11-09Bibliographically approved

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